The business community in Pakistan is appalled by yet another hike in electricity costs of Rs4.94 per unit. The base unit power tariff is raised by the latest increase from Rs24.82 to Rs29.78.Businesses fear that the recent increase will negatively affect their competitiveness by driving up their expenses, making them significantly more expensive for both domestic and foreign customers.
Several industries have shut down or reduced production to cut costs as the economy struggles as a result of the balance-of-payments crisis, high oil prices, and skyrocketing inflation.
At least in the short term, the anticipated manufacturing revival following the IMF-mandated tariff increase may not materialise. This is a problem for the government.
On the one hand, it must adhere to the terms of the new, temporary $3 billion IMF programme in order to prevent default and strengthen Pakistan’s ability to repay its debt over the coming months. On the other hand, there is intense pressure to resurrect industrial activity in order to spur economic expansion and job creation. The Stand-by Arrangement requirement to produce a primary budget surplus of 0.4 percent this fiscal year has limited the government’s ability to continue financing significant power tariff price losses beyond a predetermined threshold and prevent the already high level of power sector debt from rising even further.
The business community is correct to blame Pakistan’s economic woes on successive governments’ unwillingness to implement significant structural reforms that have been politically unpopular for a long time. For instance, despite numerous increases in power rates over the past few years, we have been unable to stop the accumulation of circular debt. The political will to rectify distribution losses, collect debt from significant defaulters, and rein in theft has not been demonstrated by any government.
Businesses are right when they point out that we seem happy to treat the symptoms rather than the underlying causes of the illness. Due to the rising cost of electricity and the ensuing inflation, the rise in power prices will not only harm businesses but also every citizen. What other choices did the administration have, I wonder? Many. To start, it could have created a framework to fix the deeply entrenched energy sector to reduce losses, taxed undertaxed sectors — real estate, retail, and agriculture — to close the fiscal gap, and unveiled a credible privatisation plan to sell off loss-making public sector enterprises like PIA to ease the burden on the budget.
It didn’t, though. That demonstrates how unwilling our politicians and officials are to maintain changes. It is understandable why the IMF Board expressed worry about Pakistan’s track record of upholding its obligations to the Fund and recommended the authorities to finish the new plan. As the lender has cautioned, this is Islamabad’s final opportunity to improve its dismal performance on
